Purchasing
personnel have the right to process invoices and override budgetary controls

FINDINGS, CONCLUSIONS, AND
RECOMMENDATIONS

NEED TO IMPROVE UPON THE APPLICATION OF GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES FOR FINANCIAL REPORTING

The University did not properly follow
generally accepted accounting principles (GAAP) for various transactions for
the year ended June 30, 2004.

We noted the following in our audit of the
financial statements:

·The University had not properly reported an advance
of $250,000 on an insurance reimbursement received before June 30, 2004.

·The University had not properly reported $789,599 in
expenses relating to a fire that occurred on campus.

·The University had not properly eliminated $349,288
in internal accounts payable and accounts receivable charges.

·The University failed to capitalize approximately
$81,000 of interest expense on construction in progress costs for the year
ended June 30, 2004.

With the
exception of the capitalized interest amount of $81,000, the audited
financial statements for the year ended June 30, 2004 have been adjusted for
these noted eliminations, omissions and misclassifications. (Finding 1, Pages
28-30)

We
recommended that the University take specific steps to ensure that certain
financial information is included in the University’s financial
statements.Specifically, the
University should:

1)Report
insurance recoveries as nonoperating gains or losses on involuntary
conversions in the preparation of the financial statements;

2)Capitalize
costs incurred in the preparation of a building for restoration as required
by GAAP;

3)Report
nonoperating expenses as such in the preparation of the financial statements;

4)Examine
its accounts receivable and accounts payable to ascertain that all internal
receivables and payables have been properly eliminated in the preparation of
the financial statements; and

5)Compute
the capitalized interest expense amount for inclusion within its financial
records.

University officials agreed with the finding and
recommendation.

NEED TO IMPROVE INTERNAL CONTROLS RELATED TO THE PURCHASING/
DISBURSEMENT SYSTEM

The University is not maintaining adequate internal controls
over its purchasing/disbursement system.

During our testing, we noted the
following internal control deficiencies over the purchasing and cash
disbursements systems:

·Accounts payable personnel have access to the vendor
database on the computer system.

·Purchasing personnel have the right to process
invoices for payment.

·All purchasing personnel have been given access to
override the budgetary controls on the purchasing system if a purchase order
amount would cause the account to go over budget.

Although no improper purchases were
noted in our current audit testing, failure to establish proper internal
controls over the purchasing and disbursement systems creates an opportunity
for fraudulent purchases and could, at a minimum, lead to the improper and
unauthorized use of University assets.University expenses excluding salary, benefits and depreciation
exceeded $38 million in the fiscal year ended June 30, 2004. (Finding 2,
pages 31-33)This finding was
first reported in 2003.

We recommended the following actions to
strengthen the internal controls over the purchasing/disbursement system:

·Limit the access to the vendor database by allowing
only one employee from accounts payable access to it.

·Eliminate the right of purchasing personnel to
process invoices for payment.

·Limit the access to override the purchasing system
budgetary controls to only two to three employees to maintain accountability.

University officials disagreed with our recommendations to
strengthen the internal controls over purchasing and disbursement
systems.In summary, the University
believes there are adequate compensating controls in place to provide
assurance that there are no improper or unauthorized uses of University
assets.(For the previous agency
response, see Digest Footnote.)

In our Auditors’ Comment, we noted our recommendations allow
the University officials some flexibility.We reiterated our position and views relating to internal controls
over purchasing and accounts payable functions.

Mr. Jeffrey
L. Cooley, Vice President for Business Affairs, provided responses to the
findings and recommendations.

AUDITORS' OPINION

Our auditors state the Eastern Illinois University's
financial statements as of and for the year ended June 30, 2004 are fairly
presented in all material respects.

____________________________________

WILLIAM
G. HOLLAND, Auditor General

WGH:TLK:pp

SPECIAL ASSISTANT AUDITORS

Doehring, Winders & Co. LLP were our special assistant
auditors on this engagement.

DIGEST FOOTNOTE

PURCHASING/DISBURSEMENT SYSTEM
INTERNAL CONTROL DEFICIENCIES – Previous University Response

The University partially accepts the
recommendations to strengthen the internal controls over the purchasing and
disbursements systems.

The University agrees that Accounts Payable (AP)
employees should not have access to purchasing screens that lead to the
creation of a purchase order and have corrected this situation.

The University disagrees with the recommendation
to limit the access to the vendor database to only one AP employee.Currently, four AP employees (three clerks
and a supervisor) have access to the vendor database.The recommendation that only one AP
employee have access does not allow for employees being absent for vacations,
illness or other circumstances.The
University believes it has restricted employee access to the database to the
minimum number necessary to process payments in a timely manner.

The University disagrees with the auditors’
recommendation to eliminate the ability of Purchasing personnel to invoice
because adequate compensating controls are in place.Purchasing personnel must acquire fiscal
agent approval on all invoices before forwarding them to AP.AP will not complete the payment process
and write the check without the fiscal agent’s approval.All checks are reviewed and dispersed by
AP personnel who do not process invoices or have access to the vendor
database.

The University disagrees with limiting override
access in budgetary controls to only two or three employees.The University believes there is
accountability in place, as Purchasing employees acquire approval from
Accounting Office personnel before proceeding with any overrides, and fiscal
agents are responsible for monitoring activity in their accounts.

The University further disagrees that there is not
a proper audit trail for purchase order changes.The date, amount, and the identity of the employee making the
change are recorded on the transaction feed to the automated accounting
system.The reason and authority for
a change are noted in the purchasing contract file and/or noted in the
automated purchasing system.

The University believes there are adequate
compensating controls in place to provide reasonable assurance that there are
no improper or unauthorized uses of University assets.As noted by the auditors, no improper
purchases were noted during the audit.